Jyoti Balasundaram, Member (J)

1. By the above applications, the applicants seek modification of stay order No. C.I/754-63/WZB/2002 dated 7.3.02 directing pre-deposit of penalty of Rs. 1 Crore and Rs. 66 lakhs by Shri B.B. Patel and Shri Snehal B. Patel respectively (Directors of M/s. Hytaisum Magnetic Ltd. ) and Rs. 16 lakhs by Shri Vishnu Patel, Excise Clerk of the company.

2. We have heard both sides.

3. By the impugned order challenged in the appeals, the Commissioner of Central Excise confirmed a duty demand of approximately Rs. 9 crores against M/s. Hytaisun Magnatics Ltd. being the Central Excise Duty evaded by them by procuring raw materials under forged CT.3 certificates and diverting the same to the open market without re-warehousing and without utilising the same in the manufacture of video magnetic tapes and cassettes for fulfillment of export obligation as per Notification No. 1/95 CE dated 4.1.95 and Notfn.No. 13/81 Cus dated 9.2.81. He also confirmed Customs duty of Rs. 15,18,671/-. He also imposed a penalty of over Rs. 9 crores on the manufacturer in terms of Section 11AC, penalty of Rs. 5 crores under Rule 173Q of the Central Excise Rules and penalty of Rs. 10 lakhs under Section 112(A) of the Customs Act, 1962. Penalties were also imposed on the two Directors and the Excise Clerk of the manufacturer as also on suppliers/consignors of raw materials. Aggrieved thereby, the noticees preferred appeals along with applications for waiver of pre-deposit before the Tribunal, the applications were heard and disposed of by the order dated 7.3.02, whereby the pre-deposit of duty and penalty by the manufacturing unit was waived on the ground that its application for declaration as sick unit had been registered with BIFR under Section 16(1) of the Sick Industrial Company (Special Provisions) Act, 1985, the applications for waiver of pre-deposit of penalties by other applicants except the above 3 applicants and Shri Vora, were allowed. As far as the present applicants are concerned, the Bench directed pre-deposit of the amounts as staled in the opening para of this order.

4. Aggrieved by the order directing pre-deposit, the applicants moved the Honble Gujarat High Court which by its order dated 10/05/2002 in Special Civil Application Nos. 4628 - 4629/2002 ordered as under:-

"When these three petitions are called out for hearing, it is brought to our notice that while refusing to waive the pre-deposit required to be made under the proviso to Section 35F of the Central Excise Act, 1944, the appellate authority has in paragraph 39(vi) of the Show cause notice as well as its final order duplicated an amount of Rs. 4,38,00,113/- which is already covered in sub-paragraph (i), (iii), (iv) and (v) of the notice as can be seen from the calculation sheet at Annexure "N" to the petition. Since the ultimate order which is made requiring the petitioner to make pre-deposit is based on the facts and figures stated in the show cause notice in which there appears to be some duplication in paragraph 39(vi) as pointed out by the learned counsel, it would be appropriate for the petitioners to approach the CEGAT in the matter by making fresh applications point out to the Tribunal the duplication which is reflected in paragraph 39(vi) of the show cause notice and paragraph 71 of the order of the Commissioner against which the appeal is pending. It is stated that such applications will be made by the petitioners within a fortnight from today. On such applications being made by the petitioners, the CEGAT will consider the discrepancies which may be pointed out by the petitioners and take a fresh decision in the matter on the question of pre-deposit under the proviso to Section 35F of the. The Tribunal shall take its decision in the matter as expeditiously as possible in accordance with law and until such decision is taken, its direction that the appeal shall stand dismissed for non compliance will not operate. This will be subject to such further orders as the Tribunal may make on the applications. Subject to these directions, notice is discharged in each of these petitions with no order as to cost."

The Misc. applications are being heard in pursuance of the above High Courts order.

5. The applicants contention that there is a duplication of Central Excise Duty demand has substance prima facie as the total duty demanded as shown in Annexure "N" to the show cause notice (annexed to this order) was Rs. 4,38,00,113 /- which included the amount included in paragraph 71 (i), (ii), (iii) and (vi) and the amount of Rs. 18,319/- on goods illicitly removed and seized in the office premises while the amounts have been confirmed twice one individually as per para 71, (i) (ii),(iii) and (vi) and again as in paragraph 71 (vii). We also note that this plea of duplication of duty demand has been raised in the appeal. The second contention of the applicants that the provisions of Rule 209A which has been invoked for imposition of penalty are not attracted against them, as the rule provides for penal action against any one who acquires possession of, or is in any way concerned in transporting or in any other manner deals with any excisable goods with knowledge or reasonable belief that such goods are liable to confiscation and confiscation has been ordered by the Commissioner under the provisions of Rule 173Q of the Central Excise Rules which are not applicable to the manufacturer which is a 100% EOU. We see prima facie force in this contention also, having regard to the language of Rule 173A(2) (in Chapter VIIA) which states that "nothing in this Chapter shall apply to a manufacturer or producer who has been allowed to discharge his duty liability in accordance with the provisions contained in Section C-1, E-III or F-IX of Chapter V or to whom the provisions of Chapter V-A apply", and the provisions of Chapter VA are applicable to 100% EOU like the manufacturer. Our view is supported by the Tribunals decision in the case of T. Gayathri Reddy and Anr. v. Cc [ 2001(94)ECR 726] which has been followed in the case of T.V. Raja reddy v. CCE&C, Guntur [2001(138)E.L.T. 793] wherein it has been held that an 100% EOU is excluded from the coverage of Chapter VIIA by Rule 173A(2).

6. In the light of the above discussions, we allow the prayer of the applicants and modify the earlier order by waiving the requirement of pre-deposit of penalties and stay recovery thereof pending the appeals.

I have carefully gone through the order recorded by my learned Sister. The applicants were directed to pre-deposit penalty of Rs. 1 Crore, Rs. 66 Lakhs & Rs. 16 Lakhs respectively as against the penalty of Rs. 3 Crores, Rs. 2 Crores & Rs. 50 Lakhs imposed on them in the impugned order. The request for modification of the earlier order of the Tribunal for pre-deposit of the above mentioned amounts is the subject matter of the present Miscellaneous applications. The applicants have claimed that provisions of Chapter VIIA of the Central Excise Rules, 1944 (including Rule 173Q) are not applicable to a manufacturer which is a 100% E.O.U. and to whom provisions of Chapter V-A apply. Therefore, it is their argument that confiscation ordered under Rule 173Q is bad and consequently they are not liable to penalty under Rule 209A. Prima facie, this argument advanced on behalf of the applicants does not appear to be correct for the following reasons:-

1) In para 65 of the impugned order, the Commissioners finding as under:-

"Shri Bharatbhai A. Patel, Chairman & Managing Director, Shri Snehalbhai B. Patel, Director (Technical) and Shri Vishnu S. Patel, Excise Clerk, all of the said assessee are also required to be penalized under Rule 209A of the Central Excise Rules, 1944, as they had full knowledge that no excisable goods can be cleared unless appropriate central excise duty is discharged thereon, but, knowing these facts, they conspired in such a systematic and well planned manner that nobody can smell that they were forging CT3 certificates, signatures and rubber stamps of the officers with designed motive of evasion of central excise duties and all the transactions they made in such a fashion that nobody could detect it for a pretty long time."

2) A 100% unit is eligible to procure excisable material without payment of duty from other units under genuine CT3 certificates for warehousing and subsequent use in the 100% E.O.U. In this case, prima facie, the applicants have forged the CT3 certificates including the signature of the Superintendent of the Central Excise and have fraudulently obtained excisable goods duty free from other units which they have sold in the market instead of warehousing the same in the 100% E.O.U. and using the same in export production. The goods which have been thus fraudulently obtained without payment of duty from other units would prima facie attract provisions of Rule 173Q as the units from where the goods have been removed were not ,100% E.O.U.s working under Chapter VA and in any case there can be no doubt that such non duty paid goods would be liable to confiscation under the and the rules.

3) Rule 209A, under which penalties have been imposed on the applicants requires dealing in any manner specified therein with excisable goods which are liable to confiscation under the and the rules. It does not require the goods to be either actually confiscated or confiscated under a particular Rule like 173Q. In the instant case, prima facie, the liability to confiscation of the goods removed fraudulently has been established and therefore, in my opinion, the applicants are liable to penalty under Rule 209A as determined by the Adjudicating Commissioner, since they have dealt with the said goods.

As regards, the plea that the Commissioner has confirmed the duty amounts twice, the learned D.R. was, unfortunately, not in a position to make any categorical submission. Presuming that the duty amounts have been counted twice, the penalties and pre-deposits of penalties can get halved. The D.R. has submitted that in any case, the pre-deposits ordered are about 1/3 of the penalties imposed and therefore, the same does not require any alteration. However, considering the fact that the D.R. was given ample opportunity to make a factual submission in regard to double accounting of the duty and has failed to do so, I am inclined to extend the benefit of doubt to the appellants and reduce the amounts required to be pre-deposited to Rs. 50 Lakhs in the case of Shri B.A. Patel, Rs. 33 Lakhs in the case of Shri Snehal B. Patel and Rs. 8 Lakhs in the case of Shri Vishnu Patel.

(SIC)

script ion of Materials required

Quantity

Value Rs.

Excise duty Rs.

Custons Duty

Remarks



.ueae

63.746 MT

808,916

145,605





As per Annexture H-l



Paper

170.133 MT

4168258

208,412





Vis per Annextcre rl~l

3.

Splicing Tape

2400 ROLLS

365,743

-

50Z Basic Duty 25Z CVS

182,672 137,154

As per Annxture H-i (as per B/E NO.X388 dt. 13.1-96)

4.

Plastic Bateria

20.024 MT

620,744

-

40Z Basic 2Z Special Duly 252 Ctffl

248,297 12,4!5 220,364

As per Annexturr H-2 (as per B/E NO.TO24 dt. 30. 8.94)

5.

For a Ring

53,342 Nos or746 Kgs or 44 Rolls

66,000

19,800





As per Annexture M-l L.K(Sick). SAHO. 61/31.05. 94 of H/s. Suprese Industries

6.

Soya LaciUin

6.329 MT

1,050,614

-

65%2%

682,899 34,670

As per Annexure M-l & BLE Mo. 1059/73 Dt 12.4.94







TOTAL

373317

Basic Special Duty CVD

1,114,068 12,415 392,188



The following difference of opinion is placed before the Honble President for reference to Third Member:

Whether the application is required to be allowed by waiving pre-deposit of penalties and staying recovery thereof pending the above appeals, as proposed by Member(Judicial)

Or

Whether the penalties on the applicants are only required to be reduced, as proposed by Member(Technical).

Per: Gowri Shankar, Member (Technical)

1. I have heard both parties.

2. The difference of opinion between the members occurred while disposing of an application filed for modification of the Tribunals order. The appeal of which the stay and modification applications form the part is against the order of the Commissioner confirming a demand for duty of Rs. 9 crores from the manufacturer, imposing on it equivalent penalty, and penalties on the two directors and a clerk of the assessee. Waiver of deposit has been granted to the assessee on the ground of financial hardship. He Tribunal directed deposit of Rs. 1 crores, Rs. 66 lakhs and Rs. 16 lakhs respectively by B.B. Patel, Snehal B. Patel and Vishnu S. Patel, two directors and excise clerk of the assessee.

3. The application for modification of the stay order was filed in pursuance of an order of the Gujarat High Court on a special civil application filed by the applicants. The Court, noting that there was duplication of an amount of Rs. 43800113 in the notice and in the order of the Commissioner, order consideration by the Tribunal of a modification application. The Member (Judicial) has, after considering this contention, and the other contentions raised by the applicant, that the provisions of Rule 209A would not apply to the directors, on a prima facie view that the provisions of chapter VIIA is not applicable to 100% export oriented unit, waived deposit of the penalties. Member (Technical) has in his order noting that the departmental representative has not made out a proper case to show that there is no countering of duty and on his view that the applicants have evaded duty payable on the raw materials or components that were received by them by forging certificates in form CT3 including the signature of the Superintendent asked deposits to be made each of the applicant.

3. The counsel for the applicants emphasized the prima facie finding and reasoning of the Member (Judicial), whereas the departmental representative reiterates what the Member (Technical) has said.

4. The duty that has been demanded on the ground that the assessee received raw materials for the manufacture of video tapes without payment of duty from the manufacturer of such raw materials in terms of notification 1/95 and sold such raw materials in the market without utilizing in its factory. The notification grants exemption to such goods for use by 100% export oriented unit inter alia subject to various conditions among which is that that the procedure contained in Chapter X of the rules is required to be followed and the goods cleared without payment of duty by their manufacturer if certified in the form CT3 is issued by the jurisdictional officer in charge of the 100% export oriented unit.

5. With the greatest respect, I am unable to perceive any reasoning in the order of the Member (Technical) that I can agree with it. Doubtless, he is right, when he says that Rule 209A does not require goods to be actually subjected to confiscation, and that it does not specify a rule under which such confiscation is to be adjudged. His order does not indicate under what other rule the goods were liable to be confiscated, his conclusion that penalty can be imposed under Rule 209A is not one that I can agree with. However, for it to apply, the goods must be liable to confiscation under any one or more of the rules. He does not dispute the view of the Member (Judicial) that they could not have been confiscated under Rule 173.

6. It was not the contention of the counsel for the applicants that the Commissioners finding that the CT3 certificates were not signed by the Superintendent but were forged by the director and other employee of the 100% export oriented unit was wrong. On the contrary when asked about it, he was not in a position to say that no such forgery has been committed. It would then follow prima facie that no CT3 certificates have been issued. Thus prima facie therefore in terms of the undertaking provided in Clause (d) of the condition to the notice, duty is required to be paid by it on the raw material which was sent to it by its manufacturer. Since prima facie these goods have not been utilized as provided in chapter X, there has been prima facie contravention of the rules.

7. I agree with the Member (Judicial) and that prima facie the goods are not liable to confiscation under Rule 173Q. Chapter VIIA of which the rule forms the part is clearly, in terms of Rule 173A (2), not applicable to a manufacturer or producer to whom the provisions of Chapter VA, which contained the provisions relating to 100% export oriented unit would apply. However, even though the goods were not liable to confiscation under Rule 173Q, the provisions of Rule 209, which are identically worded as Rule 173Q, would apply. The goods were therefore prima facie liable to confiscation under Rule 209 and hence the persons who prima facie knowingly rendered them liable to confiscation are liable to penalty under Rule 209A. The fact that the Commissioner in his order failed to cite Rule 209A but ordered confiscation under Rule 173Q is at this stage not of significance. The judgment of the Supreme Court in Union of India v. J.K. Steel Ltd 1999 (78) ELT 399 is sufficient authority for the proposition that where the exercise of the powers proceeds from lawful authority applying up of a wrong provision of law or omission to cite the provisions can not render an order invalid.

8. Based on this line of reasoning, I am in agreement with the conclusion of the Member (Technical), as regards the amount required to be deposited by the applicants.

In the light of the majority opinion, pre-deposit of the following amounts by the following persons are directed:-

Shri Bharat B. Patel : Rs. 50 lakhs

Smt. Snehal B. Patel : Rs. 33 lakhs

Shri Vishnu B. Patel : Rs. 8 lakhs

Time for pre-deposit is 12 weeks from the date of receipt of this order.

Compliance is to be reported on 18/02/2004.